To make sure refinancing is the right choice for you, thoroughly consider the benefits versus the costs.
The benefits of refinancing
Most people are interested in refinancing their mortgages to get a:
- Lower interest rate
- Lower monthly payment
- Better loan and term
You may enjoy:
- Significant savings over the life of your loan
- Purchasing power with cash for home renovations, education costs and more with cash-out refinancing
- Simpler and more affordable finances with debt consolidation
The cost of refinancing
When you refinance, you'll have to pay for:
- Home appraisal. Prices vary, but appraisals are typically paid up front by the home owner.
- Costs to close. You may have the choice to include this amount in your refinancing so that you don't have large out-of-pocket expenses.
Once you have estimated closing costs, figure out how long you plan to stay in your home. Then you can determine how much the lower monthly payments will save you during that time, so you'll be able to tell if it's a good decision to refinance.
And remember to consult a tax advisor when you refinance. Depending on your situation, your deductions may be different for the upcoming tax year. If you choose cash-out refinancing, keep in mind that the IRS has specific guidelines(opens in a new tab) about the tax deductibility of mortgage interest.
The bottom line
For many people, the benefits of refinancing outweigh the costs. You can save money if you choose to refinance at an opportune time, and if you decide to stay in your home long enough to reap the benefits of refinancing. Just be sure to cover all the bases as you make your decision.
Keep it up. You're getting smarter about home buying.
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